Antich v. Capital Accounts CA2/1 ( 2023 )

Filed 7/26/23 Antich v. Capital Accounts CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
opinions not certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
NELLY ANTICH, B313167
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 19STCV18665)
v.
CAPITAL ACCOUNTS, LLC,
Defendant and
Respondent.
APPEAL from an order of the Superior Court of Los
Angeles County. Dennis J. Landin, Judge. Affirmed.
Golden & Cardona-Loya, Cory M. Teed, for Plaintiff and
Appellant.
Carlson & Messer, David J. Kaminski, Martin Schannong,
for Defendant and Respondent.
___________________________________
Pursuant to its inherent authority to vacate a default
judgment on equitable grounds, the trial court granted a motion
by defendant Capital Accounts LLC (Capital) to vacate a default
judgment obtained against it by plaintiff Nelly Antich. Antich
contends this was an abuse of discretion. We disagree and
therefore affirm.
BACKGROUND
Antich incurred a debt to a health care provider for medical
services. In March 2016, the debt was placed with Capital, a
Tennessee-based collection agency.
On May 29, 2019, Antich sued Capital in Los Angeles
Superior Court for alleged violations of the Fair Debt Collection
Practices Act, 15 United States Code section 1692, et seq.
(FDCPA), which prohibits unlawful debt collection, and the
California Consumer Credit Reporting Agencies Act, Civil Code
section 1785.1 et seq. (CCRAA), which prohibits unlawful credit
reporting.
Antich alleged that she informed Capital and provided
documentation that the medical debt had been paid in full, and
Capital confirmed that the balance was zero but nevertheless
reported to credit agencies that the account had a past due
balance of $1,520. Antich complained to both Capital and the
credit agencies about this but Capital failed to conduct a
reasonable investigation and furnished information to the
agencies that it knew or should have known was inaccurate.
Antich sought “statutory penalties of $120,000 pursuant to Civ.
Code § 1785.31, subd. (a)(2)(B), which permits recovery of a
penalty of up to $5,000 for each violation (24 months of
reporting).”
Antich served Capital with the complaint in June 2019.
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Capital failed to respond, and Antich obtained a default on
August 16, 2019, and a default judgment on January 9, 2020.
A year later, on January 19, 2021, Capital filed a motion to
set aside the default judgment on the grounds of extrinsic
mistake.
In support of the motion, Gregory Nowicki, Capital’s owner
and principal, declared the Antich matter was ostensibly being
handled by Jason Coleman, Capital’s now-former in-house
counsel, who worked for Capital from October 2015 to May 2020.
However, unbeknownst to Capital, Coleman failed to handle the
matter properly and by May 11, 2020, had effectively abandoned
his employment with Capital and left the company without
having reported any default issues regarding this or other
lawsuits. His departure occurred during the early chaos of the
Covid-19 pandemic, which crippled Capital’s operations.
Nowicki declared that Coleman left Capital’s legal affairs
in disarray, with multiple defaults and other significant legal
problems, including loss of a collection license. Capital engaged
emergency legal counsel from Georgia to search for any pending
legal matters. Emergency counsel explored the breadth of
Coleman’s nonfeasance and in June 2020 discovered the Antich
default. Capital was unable to retain new in-house counsel until
late September 2020, after which it retained a California
attorney to handle the instant default.
Nowicki further declared that Capital maintained
procedures to avoid credit reporting a debt that had already been
paid. To ensure Capital did not actively report a zero-balance
account to credit agencies, it had a procedure to delete the
account once it learned the debt was paid or settled. Its credit
reporting system screened out any account having a zero balance,
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and any such account that had already been reported triggered
Capital’s system to send a “DA” (delete account) code to all
consumer credit reporting agencies to ensure the account was
deleted.
Coleman, Capital’s former in-house counsel, declared he
initially failed to calendar any response to the Antich default
because Antich’s counsel told him the parties to the debt were
involved in settlement negotiations, but in any event he was “sick
during [his] time at Capital,” missed substantial time from work
from May to August 2019 due to personal health issues and
serious and stressful family matters, and was “overwhelmed with
urgent family matters for months on end.”
On March 9, 2021, the trial court granted Capital’s motion
to vacate the default judgment.
DISCUSSION
Antich contends the trial court abused its discretion by
granting Capital relief from the default judgment. We disagree.
A. Background on the Trial Court’s Power to Vacate
Default Judgments and the Standard of Review
There are two means by which a trial court may grant
relief from a default judgment. The first, under Code of Civil
Procedure section 473, subdivision (b) (section 473), requires a
party to apply “within a reasonable time, in no case exceeding six
months, after the judgment, dismissal, order, or proceeding was
taken.” The time limit is jurisdictional, and after six months
have passed, the court lacks power “to grant any relief, regardless
of any question either as to the merits of the application, or as to
whether or not the application was made within what might be
held to be a reasonable time under the circumstances.” (Smith v.
Pelton Water Wheel Co. (1907) 151 Cal. 394, 397.)
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Here, Capital filed its motion on January 19, 2021, more
than a year after the default. Because Capital failed to meet the
six-month deadline, relief was available only under the second,
more burdensome method—by means of the court’s “inherent
authority to vacate a default and default judgment on equitable
grounds such as extrinsic fraud or extrinsic mistake.” (Bae v.
T.D. Service Co. of Arizona (2016) 245 Cal.App.4th 89, 97.)
As our Supreme Court has explained, equitable relief from
a default judgment “may be given only in exceptional
circumstances. ‘[W]hen relief under section 473 is available,
there is a strong public policy in favor of granting relief and
allowing the requesting party his or her day in court. Beyond
this period there is a strong public policy in favor of the finality of
judgments.’ ” (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981-
982.) “A party seeking relief under the court’s equitable powers
must satisfy the elements of a ‘stringent three-pronged test’: (1)
a satisfactory excuse for not presenting a defense, (2) a
meritorious defense, and (3) diligence in seeking to set aside the
default.” (Kramer v. Traditional Escrow, Inc. (2020) 56
Cal.App.5th 13, 29 (Kramer).)
An order vacating a default judgment is appealable as an
order made after final judgment. (Code Civ. Proc., § 904.1, subd.
(a)(2); Moghaddam v. Bone (2006) 142 Cal.App.4th 283, 287.)
“We review the court’s [ruling on] a motion for equitable relief to
vacate a default judgment or order for an abuse of discretion,
determining whether that decision exceeded the bounds of reason
in light of the circumstances before the court. [Citation.] In
doing so, we determine whether the trial court’s factual findings
are supported by substantial evidence [citation] and
independently review its statutory interpretations and legal
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conclusions.” (County of San Diego v. Gorham (2010) 186
Cal.App.4th 1215, 1230.)
B. The Trial Court Did Not Abuse Its Discretion by
Granting Equitable Relief from the Default
Judgment
1. Satisfactory Excuse
“ ‘ “Although the policy of the law is to favor a hearing on
the merits of a case, courts are not required to set aside default
judgments for defendants who flagrantly ignore the responsibility
to present a defense. . . . The defendant must . . . demonstrate a
satisfactory excuse for not responding to the original action in a
timely manner.” ’ [Citation.] A defendant has a satisfactory
excuse if it shows that an extrinsic fraud or extrinsic mistake
occurred.” (Kramer, supra, 56 Cal.App.5th at p. 29.)
“In this context the terms ‘fraud’ and ‘mistake’ have been
given a broad meaning by the courts, and tend to encompass
almost any set of extrinsic circumstances which deprive a party
of a fair adversary hearing. [Citation.] The term ‘extrinsic’ refers
to matters outside of the issues framed by the pleadings, or the
issues adjudicated.” (Aldrich v. San Fernando Valley Lumber Co.
(1985) 170 Cal.App.3d 725, 738 (Aldrich).) “Mistake has been
defined as ‘ “. . . the doing of an act under an erroneous
conviction, which act, but for such conviction, would not have
been done.” ’ [Citation.] The same reasoning logically applies to
a failure to act,—an omission.” (Ibid.)
Here, Capital explained that it made no response to the
complaint and default because it had been effectively abandoned
by the positive misconduct of its attorney—complete
abandonment—and thus did not know about them.
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“[W]here the client is relatively free from negligence, and
the attorney’s neglect is of an extreme degree amounting to
positive misconduct, the attorney’s conduct is said to obliterate
the existence of the attorney-client relationship. [Citations.] The
client in such a case has representation only in a nominal and
technical sense.” (Aldrich, supra, 170 Cal.App.3d at pp. 738-739.)
“Clients should not be forced to act as hawk-like inquisitors of
their own counsel, suspicious of every step and quick to switch
lawyers. The legal profession knows no worse headache than the
client who mistrusts his attorney.” (Daley v. Butte County (1964)
227 Cal.App.2d 380, 392.) “Positive misconduct is found where
there is a total failure on the part of counsel to represent his
client.” (Aldrich, at p. 739; see also People v. One Parcel of Land
(1991) 235 Cal.App.3d 579, 584 [defense attorney’s “absolute
failure to oppose the default judgment motion, as well as his
apparent failure to return any of [the client’s] telephone calls,
suggests positive misconduct through a total failure to represent
his client”].)
Coleman, Capital’s former in-house counsel, declared that
he effectively abandoned his client due to personal health and
family issues.
This constitutes substantial evidence on which the trial
court could reasonably find extrinsic mistake sufficient to absolve
Capital of responsibility for Coleman’s inexcusable neglect.
Antich argues that Coleman “claims he only missed work
between May 2019 and August 2019 but provides no explanation
as to why he could not attend to this matter in the subsequent
seventeen months.” That is not the record. Coleman declared he
was “sick during [his] time at Capital” and was “overwhelmed
with urgent family matters for months on end.” It is undisputed
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that when he left Capital in May 2020, the firm’s legal affairs
were in substantial disarray. From this record the court could
reasonably conclude that Coleman’s disability extended all the
way to the time he left Capital.
Antich argues her attorney gave Coleman every
opportunity to respond to her complaint and seek to vacate the
default but he simply declined to do so, which constitutes
negligence, not mistake. This is conceded. But the question is
whether Coleman’s total failure to provide adequate legal
services constituted an abandonment sufficient to absolve Capital
of responsibility for Coleman’s inexcusable neglect.
This was a factual matter for the trial court to decide. “We
do not substitute our judgment for that of the trial court” in
resolving factual disputes. (In re Marriage of de Guigne (2002) 97
Cal.App.4th 1353, 1360.) Instead, as noted above, we review the
trial court’s factual findings only for substantial evidence.
(County of San Diego v. Gorham, supra, 186 Cal.App.4th at p.
1230.) “ ‘In applying this standard of review, we “view the
evidence in the light most favorable to the prevailing party,
giving it the benefit of every reasonable inference and resolving
all conflicts in its favor.” ’ ” (Pope v. Babick (2014) 229
Cal.App.4th 1238, 1245.) We are not a second trier of fact.
We conclude that substantial evidence supported the trial
court’s finding that Capital had a satisfactory excuse for not
responding to the original action in a timely manner.
2. Meritorious Defense
The second requirement for equitable relief from a default
judgment is to establish a meritorious case. To meet this
requirement, “only a minimal showing is necessary. [Citation.]
The moving party does not have to guarantee success, or
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‘demonstrate with certainty that a different result would
obtain. . . . Rather, [it] must show facts indicating a sufficiently
meritorious claim to entitle [it] to a fair adversary hearing.’ ”
(Mechling v. Asbestos Defendants (2018) 29 Cal.App.5th 1241,
1246; see also Gruber v. Gruber (2020) 48 Cal.App.5th 529, 532
[court analyzes the merit of a claim by accepting the claimant’s
evidence as true and evaluating whether the claim is legally and
factually tenable].)
Here, Antich asserts claims under the FDCPA and CCRAA,
alleging she paid her debt to the original creditor before it was
referred to Capital for collection, and Capital should not have
reported a past due amount to consumer reporting agencies.
However, both the FDCPA and CCRAA preclude liability
due to a defendant’s “bona fide error” if the defendant maintained
reasonable procedures designed to avoid alleged errors. The
FDCPA provides: “A debt collector may not be held liable in any
action brought under this title if the debt collector shows by a
preponderance of evidence that the violation was not intentional
and resulted from a bona fide error notwithstanding the
maintenance of procedures reasonably adapted to avoid any such
error.” (15 U.S.C. § 1692k(c).) Similarly, the CCRAA provides:
“A person who furnishes information to a consumer credit
reporting agency is liable for failure to comply with this section,
unless the furnisher establishes by a preponderance of the
evidence that, at the time of the failure to comply with this
section, the furnisher maintained reasonable procedures to
comply with those provisions.” (Civ. Code, § 1785.25, subd. (g).)
This is known as the “bona fide error defense,” an
“affirmative defense, for which the debt collector has the burden
of proof.” (Reichert v. National Credit Systems, Inc. (9th Cir.
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2008) 531 F.3d 1002, 1006.) A debt collector meets its burden
under the defense by producing “evidence of ‘reasonable
preventive procedures’ aimed at avoiding the errors.” (Ibid.) The
defendant debt collector must also show by a preponderance of
evidence that the violation was unintentional. (15 U.S.C. §
1692k(c).)
In support of its motion to set aside the default judgment,
Nowicki declared that Capital (1) maintained a credit reporting
system that screens out any account that has a zero balance, (2)
maintained procedures to avoid credit reporting a debt that had
already been paid, (3) had a procedure to delete an account if
Capital was informed that the debt has been paid or settled, and
(4) maintained a system wherein any zero-balance account that
was previously credit reported triggered a “DA” (delete account)
code to be sent to all consumer credit reporting agencies.
Accepting this evidence as true, it supports a legally and
factually tenable bona fide error defense under the FDCPA and
CCRAA. Thus, even if Antich’s allegation was correct that
Capital improperly credit reported her medical debt, Capital had
a colorable statutory defense.
This constitutes substantial evidence from which the trial
court could reasonably conclude Capital possessed a sufficiently
meritorious defense to entitle it to a fair adversary hearing.
Antich argues that Capital furnished information to Ms.
Antich’s credit reports that it knew or should have known was
inaccurate. But at this point that is merely an allegation, not a
fact, and its truth and import would be matters for the trier of
fact to determine. Capital’s only burden in moving to vacate the
default judgment was to show it possessed an equally viable
defense.
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3. Diligence
“The final prong of the stringent three-part test . . . is
whether defendants diligently tried to set aside the default once
discovered.” (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 983.)
Nowicki declared that Capital first learned of the default
and default judgment in June 2020, and spent the next couple of
months trying to retain new in-house counsel to correct the
various legal problems discovered by emergency counsel. Capital
was unable until September 2020 to retain new in-house counsel
to address the issues looming because of Mr. Coleman’s
nonfeasance, and was only then able to retain a California firm to
respond to the default. All of this occurred within the first year
of the Covid-19 pandemic, which was characterized by lockdowns,
closures and delays that affected both the Los Angeles Superior
Court and law firms alike.
This constitutes substantial evidence from which the trial
court could reasonably conclude Capital diligently tried to set
aside the default once discovered.
Antich argues that the seven months between Capital’s
discovery of the default judgment and its motion to set aside the
default was unreasonable. But that was a factual matter for the
trial court to decide in light of the relevant circumstances.
Although courts have held that a defendant failed to act
diligently by filing a motion several months after learning of a
default judgment (e.g., Kramer, supra, 56 Cal.App.5th at p. 39
[eight months]; Pulte Homes Corp. v. Williams Mechanical, Inc.
(2016) 2 Cal.App.5th 267, 270, 277-278 [four and a half months];
Cruz v. Fagor America, Inc. (2007) 146 Cal.App.4th 488 [nine
months]), here, the trial court could reasonably conclude that
between Coleman’s illness and family problems, the scope and
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complexity of the legal entanglements he left behind, and the
advent of the Covid pandemic, it was reasonable for Capital to
take seven months to hire emergency counsel to examine the
problem, retain new in-house counsel to ascertain the legal
remedies available and proper procedures for obtaining relief,
hire California counsel, and file its motion. (See Orange Empire
National Bank v. Kirk (1968) 259 Cal.App.2d 347, 355 [almost six
months between the time of discovery of the judgment and the
filing of the motion to vacate].)
Antich relies on Sporn v. Home Depot USA, Inc. (2005) 126
Cal.App.4th 1294, where a defendant unsuccessfully sought
equitable relief from a default judgment, claiming the plaintiff
and his counsel “obtained the judgment by stealth,” were “laying
in the weeds,” engaged in “improper tactics” and obtained the
default judgment through “acts and omissions which constituted
extrinsic fraud.” (Id. at p. 1300.) But that case involved
allegations of extrinsic fraud which the defendant was unable to
substantiate. Capital asserts only extrinsic mistake and, as
discussed, was able to substantiate its claim.
DISPOSITION
The order is affirmed. Respondent is to recover its costs on
appeal.
NOT TO BE PUBLISHED
CHANEY, J.
We concur:
BENDIX, Acting P. J. WEINGART, J.
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